Disclosure statement

Anita Talberg is on an Australian Postgraduate Award PhD scholarship.

David Hodgkinson, John Mathews, and Peter Christoff do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.

In a joint US-China climate statement, issued as part of President Xi Jinping’s state visit to the United States, China confirmed that its new trading sytem will cover “key industry sectors such as iron and steel, power generation, chemicals, building materials, paper-making, and nonferrous metals”.

Below, our experts react to the development.

John Mathews, Professor of Strategic Management, Macquarie Graduate School of Management, Macquarie University

Xi Jinping is scoring a propaganda coup by announcing China’s intention to introduce a national cap-and-trade scheme in 2017, while he is a guest of Obama at the White House. It will not be lost on observers that China will be introducing the very kind of scheme that failed to get through the US Congress, passing the House but being defeated in the Senate.

How interesting that China the communist country is introducing the kind of market-based emissions trading scheme that the United States was unable to launch.

There are two further points to make. The first is that China is introducing its national scheme after trying out various options as local and city-level experimental schemes over the past couple of years. In 2012, pilot programs were initiated in seven provinces, and have been closely monitored since. Here China is teaching the world a lesson in how to introduce reform: first try it out at a small scale in a variety of forms, and then scale up the most successful.

Second, China is not relying on these market-led cap-and-trade initiatives alone. It is also reducing coal consumption in its power sector through direct state intervention, and has been actively promoting solar photovoltaic and wind power through state-guided targeted investment, national planning, and local promotion programs. So the new scheme will take its place as an initiative that helps to solidify China’s trajectory towards greening its energy systems – after direct state action has done the heavy lifting.

China’s greenhouse gas emissions represent a quarter of the global total. For this reason alone, any tangible progress on Chinese climate action is encouraging. However, what is more promising is what a Chinese emissions trading scheme could mean for the world.

To date we have only seen pockets of emissions trading across the globe; most notably the EU has had a scheme since 2004 and a Californian system has been operating since 2013. Despite concerted efforts, there has been very little headway in linking regional emissions trading schemes. This is because carbon credits would become fungible.

So if one market crashes, so do the connected markets. The entire system is only as strong as the safeguards in the weakest market. The environmental effectiveness of the entire system is only as credible as the monitoring and verification in the least stringent scheme.

The EU and the rest of the world will be looking closely at the integrity and robustness of the Chinese market’s design. If China gets it right, and can elicit enough buy-in, it could represent a turning point for climate change.

Peter Christoff, Associate Professor, School of Geography at University of Melbourne

The announced introduction of China’s national emissions trading scheme in 2017 places irresistible pressure on Malcolm Turnbull to revisit the issue of an Australian ETS.

When China joins the European Union (the world’s third biggest aggregate emitter) and a number of other major emitting countries and states using cap-and-trade schemes to help cut emissions, some 40% of total global emissions will be covered by carbon markets.

Tellingly, Chinese President Xi Jinping made his announcement at a joint White House Press Conference with President Obama. Together they emphasised how the world’s two largest emitters are now collaborating closely to tackle global warming. Pressure is building within the US to create a national integrated scheme on the foundations of its regional efforts, and other major emitters, like Brazil and Russia, are contemplating similar measures.

Australia’s Direct Action Plan cannot easily be linked to this growing global carbon market. Its underfunded “reverse auction” process cannot acquire sufficient emissions to meet even Australia’s 2020 target. Its “safeguard mechanism” is unlikely to require major Australian emitters to reduce their emissions significantly. Australia is now transparently out of step with global trends and, relying only on current measures, incapable of meeting the tougher mitigation targets which will be required of it in the near future.

David Hodgkinson, Associate Professor, Faculty of Law, University of Western Australia

The Chinese government’s announcement of a 2017 national ETS is not surprising. Since 2011 China has been piloting seven trading schemes in cities including Beijing and Shanghai, albeit with varying success, and has been planning for and had foreshadowed a national scheme.

The announcement also builds on last year’s US-China bilateral agreement, which included a pledge from China (for the first time) that its emissions would peak no later than 2030 – although no mention was made of the level at which they would peak.

What is surprising is the speed with which the divide between developed and developing states enshrined in both the UNFCCC and its Kyoto Protocol has now crumbled. Both developed and developing countries in Paris in December will now state their climate pledges, or “intended nationally determined contributions”, including China. These contributions won’t be negotiated by all the parties – that approach has long gone. And the legal character of these contributions is uncertain. But China’s announcement on Friday certainly works in favour of a more robust agreement.

The climate change problem can’t be addressed without China, the world’s largest emitter (or indeed India, the third largest). China now joins the other 75 countries (and the European Union) with frameworks for limiting emissions, and the 47 countries (plus the EU) that have carbon pricing.